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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.
Skip to about the eight minute mark to hear Janet Tavakoli, author of Dear Mr. Buffet and head of Tavakoli Structured Finance, talk about credit derivatives, also known as “financial weapons of mass destruction” or the more contemporary “product of financial meth labs”.
This story at the Huffington Post just keeps popping up everywhere – something about a gold price surge based on CDS holders demanding payment in gold?
From a story by Diana Olick at CNBC late yesterday on the possibility of the federal government getting behind a large-scale program to reduce principal balances on underwater mortgages comes a keen observation from housing consultant Howard Glaser.
Home prices have fallen so far in the hardest hit areas, the areas where the bulk of the troubled loans are, that banks would have to write down principal 30 to 50 percent to put borrowers back in the green. Accounting rules require that banks write down the value of those loans on their books, and experts tell me that if banks really accounted for all the losses in the home loan market, they’d all be insolvent.
That’s why the Obama Administration has created this kind of shell game in the first place.
I stole that shell game idea from housing consultant Howard Glaser: “We’re spending tens of billions of dollars on a tax credit to get people to purchase homes, we’re spending federal money to keep them in their homes through the modification program, and now we’re going to pay them to move out of their homes. This is not a sustainable system for the housing market. It’s a shell game. Bernie Madoff could have created this system,” Glaser told me today.
Mr. Glaser does a good job with that summation and one important tidbit that dovetails nicely with the tax credits, loan modifications, assisted short-sales, and possible principal reduction is the fact that the U.S. government, via wards of the state Fannie Mae and Freddie Mac, basically own the entire mortgage market.
From the Tom Toles collection at the Washington Post comes yet another way to look at the relationship between big banks on Wall Street and elected officials in Washington.
This was from early last week, that is, before the Volcker rule seemed to again be in favor at the White House but prior to the rumors and subsequent uproar in Congress about the consumer protection agency being consolidated at the Federal Reserve.
Famed investor Jim Rogers talked to Damien Hoffman at Wall Street Cheat Sheet and shared his thoughts about the future of the common currency in this interview:
Well I’m long the Euro because I expect them to come through this one okay. Either Greece is going to be papered over and they’ll give a blast to the Euro, or they’re going to let Greece go bankrupt. In my view, this is what they should do because then people would say, “Wow. They’re serious about sound economies in Europe.” That would make the Euro very strong. Then people would know they are not just going to print money or paper over failure.
Either way, I think there’s probably a rally coming. There’s a huge short position in the Euro and whenever there’s been a huge short position in anything, it’s sometimes profitable to go to the other side. So, I am long the Euro because I think there are too many pessimists.
Maybe Greece will go bankrupt and the Euro will collapse before people realize, “That’s good … that’s not bad.” Sometimes it takes a lot for perception to become reality or reality become perception.
Amid all the talk about the troubles in Europe and the limitations of a common currency for more than a dozen disparate nations, this is the first time that I think I’ve heard this line of reasoning about why this could make the euro stronger – because the euro zone is actually doing something about deficits and forcing member nations toward sounder government finances, whereas, the U.S., U.K., Japan, and others just seem to be barreling toward a cliff.
The rest of the interview is also worth a look as Rogers talks about such topics as how you can’t really sustain the kind of economy that we’re trying to sustain here in the U.S.
You have to give Nobel Prize winning economist Joseph Stiglitz credit for his candor in some remarks he made yesterday at a conference where financial market reform was discussed.
As recounted in this story over at the Huffington Post, he said a few things that should be patently obvious to anyone with a working knowledge of how the Federal Reserve system really works, yet, even to me they somehow seemed shocking.
“If we had seen a governance structure that corresponds to our Federal Reserve system, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure,” Stiglitz said during a conference on financial reform in New York. “It’s time for us to reflect on our own structure today, and to say there are parts that can be improved.”
…
To Stiglitz, the core issue is that regional Fed banks, such as the New York Fed, have clear conflicts of interest — a result of the banks being partly governed by a board of directors that includes officers of the very banks they’re supposed to be overseeing.
What’s even more egregious is to think that, not only does the Federal Reserve supervise the very banks whose CEOs sit on its board, but that, even after their disastrous track record as a consumer watchdog over the last decade or so, that power appears likely to stay with the central bank despite loud protestations from those with no lobbying clout.
Clearly, the system can not be reformed from within – that much should be clear by now.
The word so far is that the Greek bond sale is being well received today with almost $10 billion in offers for less than $7 billion in debt for sale. The premium investors are demanding is roughly three percentage points more than for German bunds, the benchmark for the euro area, where they continue to remain very cool to the whole idea of a bailout.
They are still protesting in Athens, though groups aligned with the Communist Party are probably not going to get much sympathy from the EU after they do things like take over government buildings following Cabinet approval of the new austerity measures.
The Greek government seems to have done their part for now, though that hasn’t stopped hedge funds from betting against the euro.
By Tim Iacono, Since 2005
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